Platform Precommitment via Decentralization
Platform Precommitment via Decentralization
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Volume/Issue:
Volume 2024
Issue 028
Publication date: February 2024
ISBN: 9798400267284
$20.00
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Topics covered in this book
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Labor , Economics- Macroeconomics , Taxation - General , Economics / General , blockchain , smart contracts , decentralization , cryptocurrency , commitment , platforms , entrepreneur's incentive , decentralized platform , platform's user , entrepreneur keep , decentralized governance , Self-employment , Revenue sharing , Blockchain and DLT
Summary
I study an entrepreneur’s incentives to build a decentralized platform using a blockchain. The entrepreneur can either build the platform using a regular company and retain control of the platform, or build the platform using a blockchain and surrender control of the platform. In either case, the platform’s users experience a locked-in effect. I show that a decentralized implementation of the platform is both (i) more profitable for the entrepreneur and (ii) a Pareto improvement, if and only if the size of the locked-in effect exceeds some threshold. Further, progressive decentralization through airdrops can be optimal.
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